All About the Noise in the Housing Market

Hello there, it’s me, Steven Thomas, with NEWS FLASH: This just in… the DOW JONES is down 1,000 points!!! Interest rates have risen to 4.5%!!! The Fed is going to be raising the short term rate at least 3 times this year!!! The TRADE WAR has officially begun!!! Californians are going to be hurt by the new tax law!!!

HOLY SMOKES! It is enough to make your head spin. And, now I am hearing from every corner of the housing market that many buyers, and some sellers, are worried about the housing crash later this year! I even heard an agent on FB Live talk about the upcoming buyer’s market. Where in the world are they getting this information from? What economist has called for real estate market correction?

It seems as if they are ignoring the obvious and relying on their guts. They remember the last time prices were this high and nobody warned them of the Subprime Meltdown in 2007. Their guts must be telling them that it is going to happen again. Survey says! AAAAAAAAA! It is all just a bunch of noise.

Do not get caught up in all of the noise… interest rates, the new tax law, the DOW Jones, the Federal Reserve. The real estate market is not going to crash. It will remain a seller’s market for quite some time. There are ZERO indicators that the market is going to turn in the buyer’s favor anytime soon. There will be no crash this year. And, the real estate market does not drop every 10 years.

You simply cannot ignore market fundamentals. It is simple. Supply and demand. Housing demand is scorching hot, stoked by historically low interest rates. Even at 4.5%, they are still at historical lows. They would have to be at about 5.5% for rates to have an impact on the market, and NOBODY has forecasted that to occur soon.

Prior to the Great Recession, rates were at 6.375%, almost two points higher than where they are today. That difference is significant. For the median sales price home in OC, roughly $700,000, that would be an additional $820 per month. 4.5% is still an absolute gift and buyers should continue to pounce upon these incredible rates.

The bottom line: demand remains sizzling hot. We covered demand, now let’s cover supply. Supply, supply, supply (head). That’s been the issue for years now. From 2012 through 2017, 31% fewer homes came on the market each year compared to 2000 through 2008. To put it all in proper perspective, there were 1,500 more homes coming on the market every single month from 2000 through 2008. That is an additional 18,000 homes per year. We sure could use an additional 18,000 homes. Ask EVERY SINGLE BUYER looking for a home below $1.25 million.

Currently, we are at 4,300 homes on the market. The long term average is 8,000 homes. We will most likely peak below 8,000 homes this year. In order for the market to turn in the other direction, the inventory needs to be above 8,000 homes for a significant amount of time. So, ignore the noise. The Orange County housing market will remain hot. Demand will be sizzling. Supply will be aggravatingly low. It’s a seller’s market. Stop dreaming that this market is going to change soon.

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